Home Loan Bank Proposal Would Widen Mission, Let Thrifts Quit

Voluntary membership in the Federal Home Loan Bank System would be open to any insured institution under legislation expected next week from Rep. Richard Baker.

The Louisiana Republican also would rename the 12 home loan banks and broaden their mission to include funding business loans in rural or underserved areas. Currently, the banks only fund medium- and long-term residential mortgages.

Rep. Baker has scheduled a hearing for his bill on March 14 and plans a subcommittee vote on March 21.

With voluntary membership and no residential lending requirements, members of the newly named Enterprise Resource Banks would be treated equally, said Bruce Morrison, chairman of the Federal Housing Finance Board, which oversees the Home Loan banks. "We think there are a lot of positive things in this legislation," he said.

Rep. Baker's plan also has drawn the early support of the commercial bank and thrift industries. Industry lobbyists said Wednesday that other government sponsored enterprises, such as Fannie Mae, provide adequate capital for housing lenders, while rural and poor areas lack sufficient credit.

The legislation would eliminate the current 30% cap on advances to commercial banks and broaden the types of assets that can be used as collateral for borrowing from the system.

It would also drop a requirement that members hold 10% or more of their assets in mortgage lending or mortgage-backed securities.

Membership has been voluntary for banks since they were allowed to join the system in 1989. Thrifts, however, have been required to belong.

Despite preliminary support, industry groups are withholding final judgment on the plan until Rep. Baker finishes the bill. Important issues still to be decided include the system's capital requirements and how much stock in an Enterprise Resource Bank a member will be required to buy.

"Obtaining broader use of the funds is critically important to community banks as core deposits move into other types of investments," said Peter Kravitz, a lobbyist with the Independent Bankers Association of America.

Rep. Baker's plan has also drawn applause from the chiefs of several Home Loan banks. "As our members have seen changes in their business, it's logical to look at new powers to serve them," said Alfred A. DelliBovi, president of the Federal Home Loan Bank of New York.

The proposal also would force most of the Home Loan banks to pay a greater share of the $300 million due on Resolution Funding Corp. bonds. All 12 banks would pay 23.7% of net income to cover the cost of the notes, which were floated to finance the 1989 thrift industry bailout.

Currently the home loan banks pay 20% of net income, but that formula never generated enough money.

Reforming the Home Loan banks has been a pet project for Rep. Baker's in the last year. But for his legislation to have a chance of passing, House Banking Committee Chairman Jim Leach must support it.

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